Ever since the feds announced that the provinces have until next year to slap a price on carbon pollution, debate has been raging about the best way to do that: follow BC’s pioneering example or go with Quebec and Ontario's more cumbersome cap and trade?
British Columbia's revenue neutral tax-a-dollar-give-back-a-dollar approach tends to be the hands down fave among fiscal conservatives. Big Oil has thrown its support behind Alberta's (quasi-revenue neutral) carbon tax, and Progressive Conservative Party of Ontario leader Patrick Brown has said he’d replace Ontario's cap and trade system with a revenue neutral carbon tax like BC’s.
But now, conservative think-tank the Fraser Institute says those praising BC’s model should temper their enthusiasm. BC’s system, it says in a report released February 16, is not as revenue neutral as it claims to be.
1. The problem?
Fraser says BC is no longer cutting corporate and personal taxes in stride with the revenue coming in from the province’s $30 per tonne tax charge. The institute says since 2013 the province has been essentially folding in old pre-existing tax credits as part of its carbon calculations. Take those out of the equation and, it says, BCers have forked out $377 million more in carbon taxes so far.
Conservative pundits quickly decried BC's revenue neutral claims as a fraud. The Financial Post published a letter February 14 to carbon-tax supporting Republicans stateside warning, “Canadians are here from the future to stop you before it’s too late.”
2. So, is the Fraser Institute right?
Marc Lee, a senior economist with the Canadian Centre for Policy Alternatives (CCPA), who’s written extensively on BC’s carbon tax, says the opposite is in fact true.
He says FI is correct in suggesting the province has created an accounting mess, but says the government is actually paying out way more than it's taking in carbon tax.
“It's revenue negative by a huge margin even well before they started piling on with the [pre-extising] 'boutique credits,'” he says.
In a statement released after Fraser's report, BC’s finance minister Mike De Jong confirms that revenue from tax cuts actually exceeded revenue from the carbon tax by roughly $500 million last year.
“Most of the criticism we've received lately has been for the fact that our tax reductions far exceed the revenues we receive from the carbon tax,” says De Jong, Well, that and the fact that BC has frozen its carbon tax rate at 2012 levels.
3. Is going revenue neutral a wise approach to begin with?
While calling them revenue neutral helps make carbon taxes an easier sell with voters, environmental advocates say what the provinces really need is to generate cold, hard cash to fund climate action infrastructure like improved transit, building retrofits and green energy. That's Ontario's plan for funds raised through cap and trade.
The CCPA argues BC’s revenue neutral provisions should be rescinded altogether.
In a 2011 assessment on carbon pricing CCPA concluded that, while it might make sense to provide targeted tax credits for green investments, "cutting corporate taxes is the worse possible way of using carbon tax revenue [that] essentially reward the worst offenders when it comes to greenhouse gas emissions.”
4. How should governments be using carbon pricing revenue?
Josha MacNab, Pembina Institute’s B.C. director says that's "the more interesting and relevant question facing Canadians right now." The answer, she says, "is that we should be spending our efforts determining the best model for each jurisdiction depending on their unique circumstances, not finding fault with successful policies.”
5. Is BC's carbon tax still effective?
There's a lot of debate around this one. A joint 2015 study out of Duke University and the University of Ottawa says it’s legit for BC to claim that the tax has reduced fuel consumption and GHG emissions (five to 15 per cent by their estimates).
But BC’s carbon tax rate has been frozen since 2012 and the current government doesn't plan on increasing it until other provinces catch up with their own federally-mandated carbon pricing schemes (roughly sometime around 2020). The reality: environmental organizations have pointed out that the current $30 per tonne charge needs to be from $75 to $200 per tonne by 2020 (which means 40 to 50 cents per litre more at the pumps) if we really want to make a dent in our climate change commitments.